Tag: Netflix

In this short video, Bob Iger, Chairman and CEO of The Walt Disney Company, discusses Disney’s New Streaming Services and the future of Digital Media and the unbundling of Cable TV content.

Bob Iger has something to say about how Disney is looking ahead at this inevitable future. Disney owns some (most?) of the most valuable entertainment content assets out there and from that perspective, Bob Iger’s comments are invaluable. Disney, which also includes ABC, ESPN, Pixar, and the new Star Wars and Marvel franchises, according to Bib Iger, is well-positioned for the general move towards cable unbundling. However, the major Pay-TV providers business current models around bundling, including Disney, are certainly being disrupted by OTT (digital over the top). As we all know, OTT has been touted as the Holy Grail for the future of TV and video.

Which would prefer? Pay for only the content you consume or overpay for content bundles that include programming that you don’t care about? Sounds like a no-brainer so why not cancel your cable subscription in favor of Netflix, Amazon (Prime) or Hulu? Perhaps ~$10 a month vs. ~$70 a month? According to Tech Crunch “In a simplistic generalization, unbundling would remove the subsidization of pay TV, banishing the requirement for every pay TV subscriber to bear the cost of content that only a portion of the subscriber base actually wants and consumes, e.g., sports content, typically the most expensive channels.”

Watch this short video to hear what Bob Iger has to say about unbundling contnet, the current and future state of the entertainment industry, and what Disney’s position is on all of the above.

Change is coming to the pay-TV business. It’s going to be a bloodbath — and not everyone will survive.

There will be blood. A lot of it.

Last week made clear — between HBO and CBS announcing plans for a streaming service that bypasses pay-TV distributors and Netflix’s failing to meet subscriber targets — that the television industry’s “Red Wedding” is here. Change is coming to the pay-TV business; we just don’t know what it is going to look like. And a Game of Thrones level of blood is going to be shed before we do.

There are still a few rusty arguments in support of the “bundle” of channels that you’re stuck buying from your cable company — it’s cheaper, they say, to get CNN, MTV, Animal Planet, and Food Network, whether you want them all or not. Choosing individual channels would be more expensive. Networks aren’t going to blow up their extremely lucrative relationship with distributors. It is unwieldy for consumers to manage multiple individual subscriptions.

But these arguments all presuppose the same thing: Pay-TV distributors and network operators just absolutely have to — as a kind of law of nature — make the same amount of money they do now. The truth is that they won’t. Some of the weaker distributors and networks are going to die, others will shrink considerably. A lot of financial pain is ahead.

Needham & Co analyst Laura Martin wrote in a widely read report last year that most consumers receive about 180 channels under a typical pay-TV subscription, though they only watch about 18 of them regularly. To maintain all 180 channels under an “à la carte” system, consumers would have to increase their annual spending on TV to $1,260, up 75% above the $720 per year they currently spend.

Consumers aren’t going to pay that. Viewing habits, particularly among younger generations, are shifting to computers and mobile devices, making a smaller, cheaper, streaming-only video bundle inevitable. But inevitable doesn’t mean imminent. It’s not like distributors can randomly choose networks to put into a smaller bundle and start selling them. And it’s not like programmers can just start handling all the billing and customer service and administrative functions that distributors currently take care of for them. As a result., distributors and programmers are headed for a messy fight, with contracts and hit shows (or lack thereof) among the leverage points each side will use to keep the balance of power in their favor while managing the transition.

The music industry offers an imperfect analogy for what is about to unfold in the television business. Surely the major record labels, which gouged consumers for years with $18 compact disc prices, would have loved to maintain their level of revenue and profit generation after Napster and iTunes and Pandora and Spotify and all the other digital delivery services came along and unbundled the album. Instead, music sales in the U.S., the industry’s largest market, have shrunk by more than 50% in the last decade, from nearly $16 billion in domestic revenue in 2003 to what will likely be around $7 billion this year. The major record labels dwindled to three from five. EMI, home to The Beatles and Beastie Boys, vanished after more than 80 years in existence. New deals with artists and radio and concert promoters grew from the technological changes, as did new revenue lines, but they are far from replacing what was lost, and it is unlikely that they ever will.

The only reason the television business has been able to hold off the digital insurgency for so long is because, unlike in music, distributors and programmers have a reason to work together. Their businesses are built on a virtuous flow of money from one side to the other. Networks charge distributors increasingly higher carriage fees, and the distributors pass those costs along to consumers, one reason for the standard 5% increase in cable bills annually.

But there’s no reason to believe that the television industry can reverse its current trajectory any better than the music industry. Lots of reports, like this one and this one, have suggested that part of the reason HBO and CBS went over the top is to actually strengthen the status quo and extract more money from pay-TV distributors.

That may be true in the short term, but in the long run, once consumers get a taste for not just a new but also a better way of getting what they want, you’ve already lost the war. Empires can only be defended for so long after the people rise up before they fall. Now it’s just a matter of how many casualties there will be. In terms of the battles, here’s a look at what’s ahead in the coming years.

HBO. Graphic by Chris Ritter / BuzzFeed.

Consumers — not the companies — are in control now, and they will increasingly forgo linear television for on-demand streaming options.

A recent comScore study found that one-third of all television viewing done by 18- to 34-year-olds happens on a computer or mobile device, not a traditional television screen. Twenty-four percent of people polled in that demographic don’t subscribe to a traditional pay-TV distributor, yet 61% of them are paying members of a digital video streaming service like Netflix or Hulu Plus.

What this means is that there isn’t a lot of content, other than sports, compelling consumers to watch television on a scheduled date and time. Younger consumers, whose viewing habits are going to become the norm rather than the exception, are perfectly happy to delay viewing watching something when they want and how they want, ad-free.

“There is no doubt that Netflix has caused a meaningful change in consumer TV consumption behavior,” wrote BTIG analyst Richard Greenfield in a report last month. “Time previously spent watching live, linear television is now being spent on Netflix, Amazon, Hulu or other binge watching vehicles (such as VOD). Consumers are now building their own personal TV ‘bucket lists’ of what they want to watch, when they want to watch it and on the device(s) they want to watch the content.”

Put another way, the TV business is becoming an on-demand business, not just for companies like Netflix, but also the traditional pay-TV distributors. Comcast, for instance, is happy to tell anyone who will listen that its subscribers have viewed on-demand content more than 30 billion times on its platform.

Other data points, among them the continued ratings erosion for primetime programming, the push among network owners for delayed viewing up to seven days after a show debuts to be counted in the ratings, a weak broadcast and cable upfront advertising market, and a decline in pay-TV subscribers for the first time ever last year despite what many are calling a “Golden Age” for TV programming, also prove that streaming is becoming the dominant form for TV viewing.

Netflix / Via netflix.com

As a result, the pay-TV industry will need to create smaller, cheaper, broadband-only bundles.

The pay-TV industry considers the bundle as holy as a deity, and they are all in its service. They insist that a package of channels provides more choice and better economic value for consumers. They claim managing multiple subscriptions to numerous streaming services is unwieldy and wouldn’t end up saving consumers much, if any, money.

They are completely missing the point. Consumers, particularly younger ones, no longer want 500 channels of nothing, even if it is cost effective. They don’t care about networks, they care about shows, and shows are available everywhere. Think about this: A subscription to HBO Go, the new CBS streaming service, Netflix, and Hulu Plus could theoretically give consumers access to shows from the four major broadcast networks, the premium pay-TV service, and many of the most popular shows on basic cable. They don’t need to subscribe to 12 different streaming services from 12 different networks to get what they want. But they are likely also more comfortable doing so than being beholden to one cable company. Writing in The Atlantic last week, Derek Thompson nailed it when he said that younger Americans find the mess of streaming options “easier to deal with than a cable box and a Comcast representative.”

To combat this, the pay-TV industry is going to have to create smaller, cheaper, streaming-only TV bundles. Companies like Sony, Verizon, Dish, Comcast, and others are already experimenting with them.

Before that happens, programmers and networks will have to renegotiate their current carriage deals. These negotiations, which have been particularly nasty in recent years, will only get uglier.

A big part of the planned streaming-only offerings from HBO and CBS is to use them as a pressure point in carriage negotiations with pay-TV distributors. Agree to my license-fee increase or we will be forced to make up the lost revenue by selling our streaming service direct to consumers for cheaper than what you charge. Having an over-the-top service also incentivizes pay-TV distributors to include the network in whatever smaller bundles they create.

But it isn’t like pay-TV distributors can just randomly select a package of, say, 15 channels and create a new bundle. Most network carriage deals require that they be distributed on the basic or expanded basic tier, thereby exposing them to the largest number of potential subscribers. Others, like HBO’s, for instance, incentivize distributors to market the channel by allowing them to keep all the revenue after certain subscriber metrics are hit.

Time Warner said last week that its Turner Broadcasting channels, which include TBS, TNT, and Cartoon Network, among others, will increase its operating profit margin by low double-digit rates for the next three years. One way it plans to do that is through increased carriage fees from cable operators. HBO Chief Executive Richard Plepler basically said the HBO Go over-the-top service will help it renegotiate its contracts with distributors for a higher revenue split. To cite another example, AMC Networks, whose flagship channel is home to Mad Men and The Walking Dead, saw distribution revenue grow 7% in the second quarter to $234 million.

Network owners aren’t going to just give up guaranteed recurring revenue and allow distributors to put them in separate bundles that require proactive subscribing on the part of the consumer. Creating smaller bundles is inevitable, but figuring out what networks and how many to offer in them will be a particularly nasty negotiation.

Justin Stephens/Courtesy CBS Broadcasting Inc. / MCT

Some networks will end up being permanently removed from pay-TV distributors.

Not every network has the power or programming to really exert leverage on a distributor by threatening to go direct to consumers the way HBO and CBS can. Those two networks, along with ESPN, are arguably the three most important in the traditional television universe.

The relative weakness of some cable networks has been underscored in recent years by the increase in blackouts during license-fee disputes. Viacom, whose suite of networks includes MTV and Comedy Central, has been blacked out from DirecTV and Suddenlink in the last two years. AMC, ABC, and CBS, among others, have also been blacked out for a period of time during contract disputes with distributors. As David Carr of the New York Times rightly points out, “The next time CBS fights with a cable system, it can do more than take out full-page ads to complain — it can tell consumers to use its cheap, $6-a-month service to get its must-see shows.”

Part of the reason lesser-rated networks get carriage to begin with is because they are bundled with more powerful networks owned by the same company. Some viewers would go crazy if they didn’t get Fox News, for instance, but they might not be so upset about not getting Fox Business. So, 21st Century Fox ties them both together so that the success of one prevents at least the failure of the other.

Martin’s report last December said that it cost about $280 million annually to run an entertainment cable channel and that it would need to average 165,000 viewers over a year to break even. Martin said that based on 2012 viewing levels, more than 120 channels would die in an unbundled world.

It is not unreasonable to assume that one way the bundle breaks is by distributors fighting back against fee increases for mid- and lower-rated networks — the channels with one or two hit shows and nothing else, particularly if those hit shows are available for streaming on some other platform. These types of networks, along with independent ones, can be expelled from cable distribution altogether in the new digital world order. Think about it: Would the threat of an over-the-top History Channel or TLC really make a pay-TV distributor nervous enough to agree to a large licensing fee increase to carry those networks?

It is all but certain that one of the traditional television networks will end up losing its pay-TV distribution and go all digital either through its own app or via YouTube or some other destination in the next few years. World Wrestling Entertainment has already found some success with its own streaming-only service, though the company still licenses its shows to traditional TV. But “passion channels,” as Martin dubs them, that are too small to survive on their own could potentially reinvent themselves as all-digital networks.

AMC / Via blogs.amctv.com

Some of these networks will only have themselves to blame for allowing streaming services to build up huge power off of their shows.

Many credit the success of AMC’s Breaking Bad to the network’s decision to license the show to Netflix, which allowed viewers to catch up on past seasons and build hype for the show over its run. The idea is that allowing viewers to sample Breaking Bad drove consumers to sign up for pay-TV packages in time for new seasons.

But making hit shows available for consumers to binge-watch on demand ad-free is not without its dangers. What is Netflix, after all, if not the best aggregator of hit network television shows around?

While Netflix and Amazon Prime have helped boost media conglomerates’ bottom line through hefty syndication deals, the focus on short-term financial gain has also allowed these companies to build huge businesses off the back of someone else’s content.

“The longer-term risk is that there is becoming an incredible array of content that is binge-able with so little content that is so important that it must be watched live or even near-live,” wrote BTIG analyst Richard Greenfield in a September report. “In turn, the risk for broadcast and cable networks is that when you, your significant other, your friends, your kids, etc. get home at night do you/they turn on their multichannel set-top box or do they start with an array of apps such as Netflix, Amazon, Hulu or HBO GO enabling them to access content that is proven and known to be of high quality, with limited to no commercial interruptions.”

Put another way, selling your best content to the competition might not be the smartest long-term strategy.

Hit shows will become ever more important currency, with exclusivity, staggered rights, and current seasons on demand driving up value.

Network television, like music and movies, is a hits-driven business. The more hits a network has, the more it is worth. That goes double for a network that owns its shows. Must-see TV is still a thing, but when consumers tune in nowadays spans from live to a week later to after the season ends.

As a result, hit shows will become bargaining chips networks use as leverage in negotiations with both traditional pay-TV and streaming distributors. Concepts like exclusivity, staggered licensing, and the availability of current seasons on demand will grow in importance. HBO’s deal with Amazon Prime to license only a select portion of its library, comprising mainly older shows, with current seasons of new shows available starting three years after they appear on the network, could provide a model for future deals that leverage both traditional pay-TV and streaming distributors to the network’s advantage.

Conversely, networks could keep their hit shows to themselves to drive subscribers to their own streaming app. One could imagine an MTV app, for example, that aggregates all of the shows across Viacom’s networks, which also include VH1, Comedy Central, and Nickelodeon, that it sells directly to consumers. HBO has already hinted that it could include shows from Turner in its streaming-only service.

Or pay-TV distributors, who have access to larger cash reserves than Netflix, for instance, could agree to pay a premium to have exclusive rights to new hit shows for their on-demand service. Consider that Netflix’s total revenue in 2013 was $4.4 billion, while Comcast’s was $64.7 billion. Comcast has focused its efforts in recent negotiations on getting on-demand rights to current seasons of hit shows, not just past seasons, which allows viewers to save new episodes for binge-watching, a practice known as “stacking.”

Fullscreen / Via youtube.com

But the rise of web video will continue to erode what a hit show means.

There’s a reason old media conglomerates have been buying up web-only video networks lately: Younger people are watching them in ever greater numbers. Dreamworks Animation started the trend in May 2013 when it bought AwesomenessTV, then Disney followed with a $500 million deal for Maker Studios, and AT&T last month bought Fullscreen for a reported $200–300 million.

To be sure, the future of TV may be even grimmer than even the most dire predictions in part because few of them take into account the rise of web video producers. Research firm eMarketer estimates people spend 55 minutes per day watching digital video and that it should generate $6 billion in advertising revenue this year. (TV advertising revenue, by comparison, totals around $70 billion.)

Major media outlets, from the Wall Street Journal to Bloomberg Businessweek to the New York Times, have published stories this year about the rise of “YouTube stars.” Multichannel networks like AwesomenessTV and Maker attract tens of millions of unique visitors per month who watch billions of streams of video.

In the new, streaming-only digital video order, it is entirely possible that traditional pay-TV distributors start carrying some of these multichannel networks or shows as apps on their set-top boxes and that they get more views than traditional networks.

True unbundling and à la carte channel choice is still years away, if not decades. Think about it: Roughly 2.5 million people still pay AOL a total of $650 million a year for dial-up internet access, which also means that landline phones still exist.

HBO is set to launch a stand-alone online streaming media service in 2015 that will not require a cable or satellite subscription. (Reuters)

HBO will launch a streaming media service in 2015 that doesn’t require consumers to have a cable or satellite subscription, the company said Wednesday, in a move that could roil the television industry and pave the way for vastly more choices for consumers.

With HBO’s announcement, television fans have been given one more reason to drop their expensive cable subscriptions, a growing trend in recent years as viewers have enjoyed more choices online through streaming media services like Netflix, YouTube and Hulu.

Up to now, many households have decided to continue paying for cable since they value live sports on ESPN and wildly popular shows on HBO, such as “Game of Thrones”– all content they can only get through a cable box.

But HBO’s move could change that calculus.

“This is an enormous breakthrough; consumers will be able to get to pick what they want and they will finally have content companies selling directly to them,” said Gene Kimmelman, president public interest group Public Knowledge, which has fought for regulations that would force the unbundling of cable television channels for consumers. “The question is, ‘Who is next’? That’s trickier because this speaks to the power of HBO’s brand to be able to break from the cable bundle.”

HBO chief executive Richard Plepler, who announced the plan in an investor meeting held by parent company Time Warner, did not say how much the streaming media service would cost or what content it would offer exactly. He said starting next year, the service will be available to U.S. subscribers and to consumers in two other countries before expanding to its entire international footprint.

Plepler was careful to describe the streaming media service as complementary to cable, rather than something aimed at busting the industry’s business model. He said HBO is targeting the 10 million homes in the U.S. that have high-speed Internet but don’t subscribe to cable or satellite television already.

“It’s time to remove the barriers to those that want HBO,” Plepler said.

The way things works now, cable firms and HBO have enjoyed a highly profitable and close relationship. HBO charges cable firms hefty fees for the right to carry their programming; cable companies in turn charge consumers additional money–say, $10 or $20 per month–to add HBO to their selection of cable channels. The linchpin of this arrangement: HBO agreeing to offer its content exclusively to cable companies.

But in recent years, HBO has grown impatient with its cable partners, saying many have not done a good job of marketing the premium channel. Plepler said “hundreds of millions of dollars” have been left on the table through untapped distribution rights and poor marketing for new subscribers. And studies show younger viewers — particularly millennials — are choosing online video subscription services over cable TV.

In May, Amazon and HBO announced a deal in which Amazon Prime members could watch a slew of HBO shows, films and miniseries–mostly past seasons of old shows like “The Sopranos.” When asked by an analyst if the plan will hurt HBO’s cable business, Plepler said: “I don’t think this is either or,” adding that 85 percent of Netflix’s users also subscribe to cable or satellite television. He said the HBO online service would be offered in partnership with Internet service providers, who are also their cable partners.

The announcement Wednesday is a striking reversal for parent company Time Warner, whose chief executive Jeff Bewkes in 2010 famously dismissed the threat of Netflix, equating it to “The Albanian army” or a “200-pound chimp.”

But with an online streaming media service, HBO is taking a page directly from Netflix and will soon compete head-to-head with the rival streaming service. HBO has 30 million subscribers in the United States; Netflix has about 37 million.

Netflix has modeled itself after HBO with its mix of exclusive award-winning original shows like “House of Cards” and movies. “We have to become more like HBO before they become like us,” Netflix CEO Reed Hastings said in an interview last summer, referencing a favorite saying of the company’s chief content officer, Ted Sarandos.

With HBO stripped away from the cable bundle, Netflix loses one of its advantages over its rival. The company, which reported Wednesday that it added fewer subscribers than anticipated, saw its shares tank about 25 percent in after-market trading.

As much money as HBO makes from cable companies–the company made $4.9 billion in revenues last year, mostly from fees paid by cable firms–the future of watching television is clearly online. According to a report by Comscore this week, four out of ten online users subscribe to a service like Netflix or Amazon Instant Video.

“I find it hard to believe that HBO is going to offer something that will make [cable companies] angry,” said Deana Myers, an analyst for research firm SNL Kagan. She said the key will be how much the online streaming media service is priced.

The big question is how much HBO charges for the online service. If the company sets the price too low, many consumers will drop their cable subscriptions and eat into the firm’s profits from that business. But set it too high, and viewers used to the roughly $10 per month charged by Netflix and Hulu Plus will balk.

The availability of more online content will provide more choices for consumers. But it won’t necessarily reduce costs. Cobble together HBO, Netflix, MLB.tv and a few more services and being an online-only viewer adds up.

And even though HBO’s announcement weakens the hand of the cable industry, firms like Comcast still enjoy a huge advantage: exclusive live sports.

As a result, consumers like Avi Greenberger won’t stop paying for the monthly streaming media service. The 25-year-old Brooklyn resident subscribes to HBO, sports channels and online services such as Hulu Plus. “I hate double paying for both cable and online services,” Greenberger said. “But with the Rangers on MSG and the Yankees on Yes Network, it’s hard to give up on cable.”

Will there be football and basketball streaming online for people who don’t pay for cable or satellite? Not anytime soon.

This month, ESPN and TNT inked deals to retain rights to show NBA games through the 2024-25 season. And the National Football League and ESPN have a deal to keep “Monday Night Football” on the sports network through 2021.